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Thursday, September 6, 2012

So many types of credit cards...what's the difference?

I'm in the process of writing a book about everything credit cards.  This is stuff I've learned over the years but it has taken me hours of research on the internet to get the details just right.  It shouldn't have to be that way.  How is a person who may be just starting out in their career supposed to figure out which credit card is best for them.  There are literally hundreds of different types.  Home loans are just as confusing but we'll leave that for another post.

So for all you kids, here's the rundown.


These are the big four.  They are the facilitating companies which transfer the money from your account to the person you are paying.  There really is no difference when it comes to service for you.  What you need to consider is not which of these logo's you have on your card but what the terms of the credit card actually entail.  For interest though, AMEX and Diners Club are supposed to be better for people who travel a lot and you get these cards through the actual company.  Visa and Mastercard are all rounders and you get them through the banks and bank equivalents.


Credit cards have essentially 4 features which change to suit your needs (and the banks).  These include an annual fee, an interest free period, an interest rate and some kind of rewards program.  You'll never get the best of all of these.  It'd be nice to have $0 annual fee, 55days interest free, 0% interest and massive rewards points per dollar spent but the banks would not make a profit out of you if that was the case.  Instead of looking at each individual credit card to determine which one is the best, decide what you want from these four features and then look for a credit card that fits your description.

Low rate on balance transfers
Do you already have massive credit card debt? You may benefit from a low-interest-on-balance-transfers card.  Make sure you have a plan to pay your debt off as soon as possible and don't use your credit card anymore if you want to avoid further problems.  Also watch out for the massive interest rate you'll be charged when your low-interest time runs out.  Make sure your debt is gone (or moved) by then.

No Annual Fee
Don't use your card much at all?  You might want a card with no annual fee so you're not slugged if you don't use your card.

Low Rate
If your card has a low interest rate, chances are there are no interest-free days.  If you are in the habit of not paying your card off in full, this is your card.  Remember though, every purchase you make on this card is costing you more than the purchase price of the item.

Low Cash Advance Rate
Getting cash out on your credit card is indicative of a budget problem.  Don't take the easy way out and pay interest on your cash purchases.  Instead, get some budgeting advice and try to use your debit card for cash.  This card only encourages bad habits.

Rewards Cards
These are good if you have a specific lifestyle which can take advantage of the rewards.  If you fly often, get a card with good frequent flyer points.  There are heaps of other rewards you can get so shop around.  If you are very disciplined, you can put all of your purchases on this card, get the points, pay the money back before the interest-free period is up and only pay the annual fee.  Beware the annual fee doesn't add up to more than the rewards you get, they can be quite high for these sorts of cards.

Specialty Cards
Some lenders have good deals for businesses which include better rewards and extra cards.  There may be a minimum spend though so read the fine print.  Some lenders will have good deals for students or people with no credit rating.  If this is you, check out the offers.

I don't want to pay any more than I absolutely have to for my purchases and I like being able to see where my money has gone each month.  I put everything I possibly can on my credit card for these reasons.  My card has a low annual fee (I'm not interested in rewards), a fifty-five day interest-free period and a relatively high interest rate for purchases and cash.  The interest rate doesn't bother me though because I never get cash out on the card and I pay my bill in full everytime it arrives, so there is no interest charge at all.  I do get rewards points as well but I'm not focussed on accumulating them.

Before asking, "what is the best card", decide how you are going to use it.  Then match your lifestyle and money decisions to the features you want on your card and go look for a card with those features.  The other way can be very confusing and time consuming.

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